880 Walkers Line, Burlington, ON, L7N 2G2, Canada

Do I Need a Credit Card Balance to Increase Credit Score?

Do I Need a Credit Card Balance to Increase Credit Score?

It’s customer question time again. This time, it’s a question around credit cards and credit scores. The question was ‘Do I need to keep a credit card balance to increase credit score?’

 

This question is more common than you might think, which is why we’re covering it in a blog post.

 

We asked our Welland auto loans team to explain whether you need to keep a balance on your credit card or not to improve your credit score.

 

Credit card balances and credit scores

 

The simple answer is that you don’t need a credit card balance to increase credit score. Having a small balance on a card has very little impact on your credit score.

 

Having a larger balance does impact your score and not in a good way.

 

Keeping credit cards paid off or balances low shows lenders you’re fiscally aware and can handle debt. There is no need to carry debt from month to month just to improve your score.

 

That said, there is a case for continually using your credit card.

 

Improving your score with a credit card

 

One of the easiest ways to improve your credit score is to use your credit card regularly. Have the minimum payment made automatically each month, then once the payment has gone, pay off the balance in full.

 

This is the optimum method of using a credit card to help build a payment history without having to pay much interest.

 

Credit cards also add to your credit utilization ratio. The amount of available revolving credit you have that you’re using, or not. Stay under 35% of available credit and you’re doing well.

 

For example, if you have a $5,000 credit limit on your credit card, having less than $1650 outstanding on it will keep you under that 35% limit.

 

We would never recommend having that much outstanding on a credit card though!

 

Go over that and any auto loan application will be carefully scrutinized.

 

Credit utilization collates all balances and credit limits for all cards. If you have more than one, you have to add everything together to get the full picture.

 

Effectively managing credit cards

 

We often suggest viewing credit cards more like bank cards. As a payment card rather than source of credit. Get into that mindset and you’ll find it easier to manage the card and to avoid overspending and getting into debt.

 

Managing a credit card is a sure sign to a lender that you’re in charge of your finances and that you’re in control of your situation. Two things we want them to think!

 

Whether you’re building towards an auto loan or just want to maintain your credit, using credit cards is a cheap and simple way to do it. Just don’t think you have to stay in debt to improve your score, because you don’t.

 

We will use all our skill and experience to deliver the lowest possible Welland auto loan rates, guaranteed. Contact Car Nation Canada Direct to learn how we can help.

 

Thanks for reading. Be sure to connect with us on Facebook, Twitter, Instagram, or LinkedIn to stay up to date on our latest great articles!

Categories: Auto Loan

Tags: ,